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Looking Back over the past 12 months

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The arrival of a new legislative year prompts a look back at the political events of the past 12 months. Apartment owners had a good 2005 in Sacramento; no bills that the Apartment Association California Southern Cities opposed became law, several legislative compromises were achieved to clarify and improve the laws affecting property management, and the defeat of SB 51 (Kuehl) led to the expiration on January 1, 2006 of the 60-day notice requirement for tenants of more than one-year occupancy with the law now reverted back to the long-standing policy of 30-days notice. Broader political trends suggest that significant new challenges will emerge during 2006.

Any discussion of California politics should begin with an evaluation of Arnold Schwarzenegger. His 2005 did not turn out as well as he had planned. Remember that just 12 months ago the Governor reigned supreme in Sacramento. He commanded broad political support with his approval ratings exceeding sixty percent -- double the level of support that registered for the state legislature. And that support had already translated into significant political accomplishments. Schwarzenegger’s debt consolidation bond had won approval on the March 2004 ballot. Voters had similarly in the November 2004 elections backed the Governor’s calls to limit business practice lawsuits, retain the 3-Strikes Law in place, and repeal the mandate on employers to provide health insurance. The workers’ compensation reforms that he had propelled through the legislature were already producing a tangible drop in insurance premiums. Just over one year into office, Schwarzenegger had silenced the political commentators who during the Davis and later years of the Wilson Administrations had argued that California was too complex and disparate to govern.

When Schwarzenegger delivered his 2005 “State of the State” address from the Assembly Chamber last January, by all appearances he possessed the political capital to back his demands for new and further political change. He challenged legislative leaders to reform legislative redistricting, restructure the public employee pension system, alter the funding schedule for public schools, and add spending restraints to the budget process. The Governor made it clear that if legislators did not cooperate on these issues he would take his agenda to the people in a special election. At first the speech delivered its intended effect; the Schwarzenegger agenda dominated the legislative discussion. But for the first time in his tenure the Governor did not carry the day.

Undetected by most observers – including the Governor’s political advisors – some cracks had appeared in the Schwarzenegger political façade. It was true, as referenced above, that the voters in the 2004 primary and general elections had sided with the Governor in the initiative battles. But that same electorate had denied him any political coattails; Schwarzenegger’s campaign to elect more Republican legislators had fallen on deaf ears as Democrats retained all their seats in the state Senate and Assembly. Republicans shrugged off their failure to gain seats as a byproduct of California’s dissatisfaction with President Bush, who led the ticket that all the Republican candidates had run on. Democrats nonetheless felt emboldened by their electoral successes. Silent during 2004 when first confronted by Schwarzenegger, the Democratic legislative leadership interpreted the election results to mean that they could survive Schwarzenegger and – more important – sustain a broad opposition to his proposals. They decided to fight.

Democrats enjoyed two advantages in their legislative battles with the Governor. Some technical blunders in the drafting process required that the Governor withdraw his proposed pension-reform initiative. At the same time, Democratic constituencies – the California Labor Federation, AFL-CIO, the California Nurses Association, and the California Teachers Association chief among them – mounted a political attack in the media against the Governor. During 2005 any Californian with normal television viewing habits saw tens and perhaps even hundreds of TV spots criticizing Schwarzenegger. The opposition, which had become alienated from the administration during 2004, lent ballast to the Democrats’ stance in the legislature. During the first quarter of 2005 the legislature rejected each of the Governor’s four reforms, leaving Schwarzenegger to confront his own promise that he would take these issues to the people if the Assembly and Senate failed to act.
Hindsight is 20/20, but in retrospect it appears obvious that Schwarzenegger never had a chance. The particulars are well known; the Governor followed through on his threat first delivered last January and called a special election to consider his reform proposals. At the ballot box the voters delivered a quite stinging – and for Schwarzenegger his first – political defeat. Exit polls indicated that voters objected as much if not more to the process of a special election as they did to the particular content of the proposals offered. For apartment owners the political events of 2005 amounted to political theatre; as citizens you had an interest in the initiatives being decided but the results did not exert a direct effect on your businesses. That could change.

The threshold question regarding the 2006 session of the California Legislature concerns “what’s next?” Will the Democrats and their allies continue to focus their energies on attacking Schwarzenegger with an eye toward driving him from office come November? Or, with the balance of power in Sacramento now weighted more in their direction, will Democrats attempt to engage Schwarzenegger on a reform agenda more to their liking? The posture Democrats take will, as much as anything, shape the general debate on issues – including apartment issues – during 2006. An escalation in partisanship could require business friendly Democrats to follow their leadership and vote a more liberal line. That would upset the coalition of moderate Democrats and Republicans that delivered the winning votes on apartment issues this year. Events during the next few months will likely answer this question.

Schwarzenegger too remains a work in progress; what lessons will he draw from his 2005 experiences? The eclectic nature of his operation – a democrat now serving as his chief of staff, an increasingly influential First Lady, a new team of Republican political consultants coming on board – suggests that he will be getting different and differing feedback this year. The smart money says that the Governor will look for a return to the bi-partisan characteristics of his earliest days in office. That’s what has worked for him and politicians – particularly during election years – seek the comfort of past successes. He’s never been a rock-solid pro-business governor in the mold of George Deukmejian but his life experiences have given him a core sense that the best economic policy is to foster a favorable business climate. By and large he is and will remain sympathetic to the business interests of apartment owners.

During this coming year the apartment owners lobby should seek to protect its moderate votes. That means not simply applying the usual tools of politics – campaign and media support for allies – but also working issues generically. Our efforts will begin with the goal of keeping apartment issues out of the broader political maelstrom. If partisanship returns to a boil the Democrat leadership likely would begin to look for issues that could be used to drive a wedge between the governor and his business supporters. Staying off that list means staying out of that fight.
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Political Reforms, Special Elections and Constitutional Rights

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Although the legislature is not in session in Sacramento, political initiatives are being planned, election campaigns are already underway and the impact of the failed special election in November is still being analyzed.

The political landscape has shifted somewhat in Sacramento. Some democrats and union leaders believe they are controlling the direction of the state while the Senate President Don Perata (D) and Assembly Speaker Fabian Nunez (D) seem to be trying to work with the Governor on planning a modified reform platform for the state.

Did the “clean sweep” against the ballot initiatives mortally wound the Governor or just give him a temporary black eye? Only the next nine months will tell for sure despite the negativity of the political pundits and pollsters. But, the question remains: what went wrong for the vastly popular Governor elected on a government reform program when he tried to implement the reforms people wanted?

Some mistakes were made early on in the process that made the election more difficult. According to State Senator John Campbell (Republican), the budget initiative (Prop 76) was not what it should have been and had drafting issues. The attacks on the “three judge panel” that helped kill the redistricting initiative (Prop 77) could have been avoided with a larger panel and more controls. Because the reform package was put together with great haste, it was not as comprehensive nor as appealing as it could have been.

Note that all eight initiatives failed. Two of these were initiatives that were promoted by liberal interests: Prop 79 to socialize prescription drugs and Prop 80 to re-regulate the electricity market. Those two actually lost by the greatest margin! So, this was not a repudiation of just conservative proposals. It was a rejection of all proposals. It appears that supporters of reform were carefully voting for some initiatives and against others. But those opposed were voting “no” on everything. The “no” side was able to communicate and deliver voters with a simple vote “no” on all reforms message. It worked.

Approximately $250 million was spent to urge a “no” vote on all the initiatives. Conversely, there was only about $50 million spent on the “yes” side. It is hard to win an election when you are outspent 5 to 1. Most of that money was from unions against the Governor. And, because Prop 75 failed, they will be able to raise their dues and do it again in 2006.

Some argue that the failure of these issues was a protest against the initiative process overall—Californians are tired of signature gathering governance.

Yet, as of November 16th, there were 27 NEW initiatives in circulation and another 22 in the Attorney General’s office awaiting title and summary! Some initiative are statutes, some are constitutional amendments. The topics range from border police to elimination of domestic partnerships to tax increases for preschools. Even dog breeding, casino-style gaming and alcohol surtax make the list.

It doesn’t appear that Californians are opposed to initiatives.

Possibly, Californians are opposed to special elections.

Current law permits the governor to call a special election for a recall; to replace a vacancy in the Legislature or Congress or when an initiative qualifies for the ballot.

Assembly Majority Leader Dario Frommer will introduce a constitutional amendment that would restrict the governor’s power to call a special election when an initiative qualifies.

Under this proposal, the governor could only call a special election after declaring a state of emergency and only ballot measures dealing with that emergency (passed by a vote of the Legislature) could appear on the ballot. All other qualifying initiatives would have to wait for the next regularly scheduled statewide election. This proposal would also allow statewide bonds (passed by the Legislature) to go on the special election ballot.

According to Frommer, since 1911, only 14 special elections have been called in California, with five taking place over the last 35 years.

As we contemplate the ramifications of reforms and special elections, the State should not pass a measure that will hog tie any governor in the future and prohibit the successful implementation of the initiative process. The initiative process was developed for the people—let’s not throw the proverbial baby out with the bathwater.
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40 Anti-Landlord Bills introduced in Sacramento

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With more than 40 anti-landlord bills introduced in Sacramento this session, the fate of our industry’s future was in jeopardy. However, Apartment Association, California Southern Cities’ legislative advocates in Sacramento saved the day! We were able to defeat EVERY DAMAGING PIECE OF LEGISLATION, including:

  • AB1400 (Laird) would have allowed sex offenders to claim protection under the anti-discrimination statutes.
  • AB781 (Leno) challenged the right of the landlord to go out of business and required (had it passed) a 5-year notice to any tenant 62 years of age or older or to any disabled tenant. SB735 (Torlakson) would have required a 30-day notice to all tenants prior to any changes in management (including managers) and ownership.
  • AB1259 (Daucher) could have implemented statewide inclusionary zoning and rent control.
  • AB399 (Montanez) proposed mandatory recycling at all properties. Rewritten to require a notice in the rental agreement indicating whether or not recycling is provided.
  • AB1078 (Keene) would have created onerous responsibilities on landlords regarding meth labs and would have imposed a never-ending sanction against the property. Changed to provide uniform inspection and correction standards, require prompt inspection by the city and mandate that the city evict and certify habitability of property (creating a liability shield for the owner.)

But, more importantly, we took back ground essential to our business. WE DEFEATED SB 51 (KUEHL) – the extension of the required 60-day notice. Beginning in 2006, all notices to terminate tenancy will once again be 30 days! This sends a powerful message to tenants that the landscape is changing and, with credible arguments, we can make a difference and restore landlords’ rights!

Had these bills passed in their original form, the cost to you would have been incalculable!

As a strong local independent association coupled with an excellent legislative team and an 80-year track record, we can marry the needs of the national property managers with those of the smaller owners. We can be the keystone to reestablish a unified industry.

If you are doing business in the Southland, you need to be on our team!

Please contact our Membership Development Coordinator:

Denise Blair
562.426.8341
Extension 312
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Busy Times in Sacramento Legistation

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As this Sacramento Report goes to press, the California Legislature is in the midst of its most active legislative period. Marathon committee hearings conducted during the last two weeks of June – scheduled to meet the so-called “policy committee” deadline of July 8th by which date all legislation must pass out of the relevant policy committee -- will shape the agenda for the remainder of this legislation term.

At the same time, budget negotiations between Governor Schwarzenegger and the Democratic leadership have begun in earnest as the July 1st constitutional deadline for the budget draws near. Next month’s report will describe the outcomes of this legislative effort, with particular attention paid to bill proposals affecting apartment owners. This issue offers an opportunity for an early assessment of the November special election that the Governor recently called.

Governor Schwarzenegger first suggested that he might call a special election during his “State of the State” address last January. In that speech, Schwarzenegger spoke of a breakdown in the legislative process that, to his mind, made true policy reform impossible. The Governor attributed this breakdown to an ascendancy of special interest power in Sacramento. Schwarzenegger argued that the legislature failed to grapple with urgent policy problems and embrace needed reforms because of its over-reliance on special interest dollars.

As a solution the Governor proposed what he termed his “four reforms” to break the hold on special interests in Sacramento and clear the political path for comprehensive policy reform. The four reforms would (1) change the reapportionment process, (2) impose spending restraints on the state budget, (3) impose limits on state pension contributions, and (4) alter current formulas for education funding.
In his speech, the Governor invited the Legislature to work with him on these issues but cautioned that if the Legislature failed to act to his satisfaction he would go over the heads of the legislators and present his proposals directly to the voters through the initiative process.

Six months and much political fighting later the Governor called a special election for this November so that the voters could consider his proposals. The reforms have been scaled back somewhat, both in quantity and scope.

After legislative hearings revealed a flaw in the Schwarzenegger proposal to move the state pension system from a “defined benefit” to a “defined contribution” model – arguably the language would have denied death benefits to the surviving spouse of a slain peace officer – the Governor withdrew this plank of his program.

The education reforms Schwarzenegger proposed also showed decreasing ambition; what started as a move to reform the structure of education spending has reduced to a plan simply to increase the number of years of service required – from 2 to 5 – before a teacher achieves tenure.

The redistricting and spending reforms retain their initial bold character. The Governor proposes taking the once-a-decade chore of redrawing legislative districts out of the hands of the legislature and assigning a panel of retired judges to the task. The Governor also proposes a “live-within-your-means” spending limitation that would restrict increases in state spending to increases in state revenue. These two measures along with the teacher tenure proposal have qualified for the November 2005 ballot.

The special election ballot will contain more than the three Schwarzenegger initiatives, however. Several other measures, qualified by political groups not necessarily affiliated with Schwarzenegger and some downright hostile to him, will also come before the voters in November. (Whenever the Governor calls a special election, for whatever purpose, any initiatives that have otherwise qualified for the next scheduled statewide election automatically get swept into the special election.)
Among these will be an initiative to require parental notification before a minor can have an abortion, a proposal to cap pharmaceutical prices, and a so-called “paycheck protection” proposal that would require public-employee unions to obtain the annual, written consent of a member to use any portion of his/her dues for political action.

The Legislature could also place any number of legislative initiatives on the special-election ballot up to and until mid-August. Whatever its final form, the special election ballot will be broad, complicated, and beyond the control of any one political actor.

Predicting the contours of the special-election campaign, let alone the outcome, is risky business. In fact, the Governor could decide to effectively pull the plug on the entire exercise by cutting a deal with the legislature on his reforms.

While the special election will go on in any event, advocates of a deal believe that were the Governor and the Democratic leadership to strike compromises on redistricting, state spending and education, the sides could defuse the special election politics.

Under this theory, the compromises reached that would require voter approval would be added to the special-election ballot through legislative initiatives. Both the Governor and Democrats would agree to mount joint campaigns in favor of these compromises while urging voters to reject all the other initiatives. This plan assumes that political leaders of both parties can control campaign activity and thereby control voters.

Assume for purposes of discussion that no deal is struck and the special election proceeds as a contested campaign. A long-held election axiom is that turnout for special elections falls significantly below the numbers for regular and regularly-scheduled elections. It is also thought that the mix of special election voters skews more conservative than what is seen in a normal election.

If these patterns were to emerge this November, Schwarzenegger would gain an advantage. But caution should be taken in projecting past patterns into this campaign. While special elections sometimes proceed from dramatic origins – recall the Gray Davis recall—more often a special election is called on account of a vacancy in office. Low turnout under these circumstances most likely reflects low voter interest.

The Schwarzenegger special likely will attract the attention of voters. The Governor, who will most likely seek reelection in 2006, will need to fight aggressively for his proposals – his prestige is on the line. His Democrat opponents, not wanting to give the Governor a big victory leading into the 2006 election cycle, will engage him with significant resources.

Already the various public-employee unions, looking both to defeat the paycheck protection proposal and to deal Schwarzenegger a political defeat, have pledged to raise over $70 million for the special. Those stakes suggest a high-profile and highly contentions race. This won’t be a sleepy little special election.

Just as past special elections shouldn’t be seen as a prologue for this year’s race, the Governor’s recent slide in popularity polls shouldn’t be seen as a clear indication of how the election will turn out. One political maxim that continues to provide useful guidance is the saying “you can’t beat something with nothing.” The Governor’s popularity has withered under months of uninterrupted political attacks. Up until now he has offered little in response. But if and when the special-election campaign heats up, the debate changes from simple attacks on Schwarzenegger to an evaluation of his proposals.

The same polls that show Schwarzenegger’s approval ratings sliding also show that voters, when asked generic issues questions without any accompanying information on where the politicians and political parties line up, tend to support most of the Schwarzenegger agenda.

The Governor remains a unique political figure with an unmatched ability to communicate effectively with voters. Although the initial polls indicate trouble ahead at the ballot for his reform proposals, it would be a mistake to count him out.

Key Issues on 30 Bills in 2005

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Over thirty bills were introduced this year in the Legislature directly affecting residential investment property. The volume, diversity and scope of the measures are unparalleled.

The key issues:

AB 781 (Leno) proposes to destroy a landlords right to go out of business became a two year bill last week due to heavy opposition. As amended, it would have required landlords in rent control communities to provide a 5-year notice to go out of business to senior and disabled tenants (currently one year notice is required). It would have also affirmatively stated that only landlords in rent control jurisdictions have the right to go out of business! More than 500 non rent control cities and counties could have enacted extremely punitive requirements for any landlord to go out of business.
AACSC position:
OPPOSE

SB 540 (Kehoe) proposes to permit tenants to display non-commercial signs of any size and number on the rented premises and grounds. Landlords would have lost control over the appearance of their property. Due to clear opposition to the bill, the author decided to make it a two-year bill.
AACSC position:
OPPOSE

AB 1574 (Jones) proposes to create a demonstration project for the city and county of Sacramento. The governments would be authorized to enact and enforce anti discrimination laws. As proposed to be amended the city and county would have to adopt an identical law to the California Fair Housing and Employment Act and interpret and enforce the laws in the shoes of the Dept. of Fair Employment and Housing. Last Tuesday, the Administration announced it would OPPOSE the bill. Before the author proposed to amend the bill, OPPOSITION from the industry was very clear: persons must file complaints with one local government not two and the laws, interpretation, administration, determinations and enforcement of law must be identical to the state.
AACSC position:
OPPOSE (review of the amendments may change the association's position)

AB 399 (Montanez) proposes to substantially change the manner in which landlords recycle solid waste. The Assembly policy committee clearly heard the opposition: the bill authorizes local government to impose new and substantial fees on all landlords owning 5 units or more to fully pay for the costs of adopting implementing and enforcing recycling solid waste programs;
the proposed new disclosure requirement of landlords would be burdensome, confusing and invite litigation, and the measure did not recognizing the plethora of recycling programs. The Assembly policy committee directed the author to work with the industry to resolve the substantive issues. As of this moment, expect significant amendments.
AACSC position:
OPPOSE (amendments will require the association to re-examine its position)

AB 1078 (Keene) is the most significant and comprehensive bill in the country to address meth labs. The author accepted over two hundred amendments. As amended: it will preempt local government remediation and inspection programs, will require government to evict (NOT landlords) tenants in all of the AFFECTED units, it will not address relocation costs, will only permit a "cost recovery lien" to be placed on the property during the pendency of the hazardous condition, will only permit government action if the property is ACTUALLY contaminated, government is to approve and oversee clean-up efforts (this is an important legal feature).
AACSC position:
FAVOR

SB 735 (Torlakson) was heard last week in the Senate Judiciary Committee. As introduced it would have required all landlords to provide a copy of a deed to tenants indicating a change in ownership. Landlords would have been required to provide a copy of a notarized statement when a change in management occurs. Tenants would not have been liable to pay rent if landlords did not follow the precise requirements of law. The next time the bill was amended, the author dropped the notion of providing tenants with copies of deeds and notarized statements and determined that a minimum notice period of 30-days should be required prior to a change in ownership or management could occur. Significant OPPOSITION mounted on the change. Finally, the sponsors dropped the whole concept of additional notice to tenants. The final amended version of the bill deals with a minor tweak in landlord and tenant law.
AACSC position:
Watch (as amended)

SB 277 (Battin) was just gutted concerning Megan's Law. At one time, the bill would have heavily burdened landlords to determine if any tenant and prospective tenant name appears on the Megan's Law database.
AACSC position:
Watch (as recently amended)

AB 438 (Parra) became a two-year bill a few weeks ago. CAA is the sponsor of the measure. It attempts to address how landlords and property managers may refuse to rent and/or evict a tenant that is a registered sex offender. While the language of the bill needs work, it is highly problematic if the Legislature is poised to do anything this year to more precisely define how landlords may reasonably deny tenancy to registered sex offenders.
AACSC position:
AMEND (due to amendments that are needed in the bill that will not add additional civil liability)

AB 304 (Hancock) would have permitted local governments to mandate all "soft sided" buildings to be retrofitted for seismic safety. The bill was opposed in the Assembly policy committee and as a consequence the author agreed to work the bill to the satisfaction of the OPPOSITION. The amendments that were agreed to: it will make minor modifications to the long standing law allowing local government to only require buildings to be subject to seismic safety retrofit requirements ONLY if the condition of the building poses a significant life safety issue. Perhaps the most important amendment to the bill which should be considered a WIN in any circle, is that the bill will prohibit locals from requiring any additional retrofit requirements for at least 15 years once a property owner completes the necessary safety upgrades. The policy will read: LEAVE MY BUILDING ALONE.
AACSC position:
??

AB 1259 (Daucher) was a bill that would have provided significant incentives for local governments to enact inclusionary zoning and rent control ordinances became a two-year bill due to OPPOSITION.
AACSC position:
OPPOSE

AB 1367 (Evans) would have encouraged ballot box planning at the expense of the housing needs for ALL low and moderate-income households. Due to OPPOSITION, the measure became a two-year bill.
AACSC position:
OPPOSE

AB 1528 (Jones) is a bill that relates to agency relationships that landlords have with their management is now a two-year bill.
AACSC position:
Not rated due to the sponsors (Western Center on Law and Poverty) statement that the bill is undergo massive change later this year.

SB 51 (Kuehl) is a bill that would remove the sunset clause in law that requires landlords to give a 30-day notice to terminate a tenancy of less than 1 year in duration and a 60-day notice to terminate for tenancies that are one year or more in duration is pending in the Assembly Judiciary Committee. AACSC position: OPPOSE

AB 1400 (Laird). The Unruh Civil Rights Act prohibits landlords and other businesses from discriminating on the basis of sex, race, color, religion, ancestry, national origin, disability, or medical condition, sexual orientation, marital status, thus mirroring the CA Fair Housing and Employment Act. At one time the bill proposed to state that the particular bases of discrimination as herein enumerated, would have been illustrative;. The result for landlords would be chaotic. Felons, registered sex offenders, households with limited income would have been encouraged to file discrimination complaints against landlords. Due to heavy opposition the bill was amended to delete the objectionable provision.
AACSC position:
NOT FAVOR (the bill still contains legislative findings that encourages most anyone to file a discrimination complaint against landlords)

AB 769 (Horton) is a bill sponsored by CAA. As amended it requires slumlords to attend a "slumlordology" class. In other words, slumlords would be taught how to be responsible owners of property, in a similar or identical manner such as programs offered in LA and Long Beach. Amendments are being considered that would require the State Consumer Affairs Agency to post on their website a list of all landlord and tenant laws. Of great concern would be: the Agency could not include interpretation or advice for tenants such as rent withholding, tenant strikes etc.
AACSC position:
Amend

The Attorney General solicited comments from interested parties on the following matter: Are persons who are required to register as sex offenders considered a protected class under the California Fair Employment and Housing Act based upon the language of Penal Code section 290.46, subdivision (j) (2)? The conclusion of the industry is that registrants are not a protected class under CalFEHA and that the Penal Code does not create a protected class for sex offender registrants under any other federal or state law. An opinion of the Attorney Genera may be released late this year.
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Contact AACSC

Apartment Association,

California Southern Cities
333 W. Broadway St., Suite 101
Long Beach, CA 90802
(562) 426-8341

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